Han Suk-chul, a senior analyst at KFB Securities Co., said local investors sold massive amounts of shares, while foreigners continued to stay on the sidelines.

Labor unrest could further hurt the country's battered economy by delaying restructuring at local companies, which is necessary to draw back foreign investment, he said.

Another blow to the market came from a report released by the Korea Development Institute. The state-owned think tank said Wednesday that a delay in restructuring could increase bad loans owed by financial institutions. This would lead many South Korean companies to collapse and the country into another foreign exchange crisis, it said.

In Japan, Tokyo stocks closed marginally higher in lackluster trading, the day before the government planned to release details of its latest attempt to revive Japan's faltering economy.

"It's hard to take active positions now, as the direction of the market is unclear," said Futoshi Yoshimura, joint head of dealing at Schroders Japan's equity trading department.

Meanwhile, the U.S. dollar fell against the yen. In late trading, the dollar bought 130.54 yen, down 0.18 yen from late Wednesday in Tokyo but above its late New York rate of 130.28 yen overnight.

In Hong Kong, share prices closed lower in quiet trading, dragged down by bearish sentiment in the futures market and an absence of positive local news.

The blue-chip Hang Seng Index closed down 0.5 percent at 10,918.94.

Analysts said the domestic economy's weakness, as evidenced by the high jobless rate reported Tuesday, has caused local investors to put less in the stock market.

In Malaysia, share prices rose 1.4 percent to 628.24 on relief that a major bank acquisition deal had gone through.

But dealers noted remaining concerns in the market about the depth and length of Malaysia's economic downturn. A number of economists now expect the country will fall into outright recession.

In Indonesia, Jakarta share prices closed down 1.8 percent to 491.56, driven by a fall in telecommunication shares as the bearish trend continued despite Indonesia's apparent commitment to economic reforms.

Dealers said foreigners saw the reforms announced Wednesday as irrelevant, and felt Indonesia's greater needs were bank restructuring, a functional bankruptcy law and debt restructuring.

Although prospects for improvement in the economy are bright with the government and central bank planning long-term bond issues to boost liquidity, investors still questioned which companies will survive the recession, dealers said.

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